Australians love their wheat and dairy products. Last year, the average Australian drank 107 litres of milk, ate 13.5 kilograms of cheese and 145 kilograms of wheat products alone.
It turns out the rest of the world loves our primary produce too. So much so, that they’re trying to buy several of the companies which produce it.
This morning, Treasurer Joe Hockey rejected the $3.4 billion takeover of Australia’s biggest grains handler, Graincorp, by US company Archer Daniels Midland Company on the grounds that the deal was against the national interest. At the same time, Mr Hockey indicated that he would allow further applications from ADM to raise its shareholding in Graincorp to just under 25 per cent – up from its current stake of just under 20 per cent.
Elsewhere in the agriculture sector, Canada’s largest dairy producer, Saputo, is a bidder in a three-way takeover battle for Australia’s Warrnambool Cheese and Butter, along with local contenders Murray Goulburn and Bega Cheese; China’s sovereign wealth fund is reportedly interested in Australia’s largest dairy operation, the Van Diemen’s Land Company; and the Indonesian government recently unveiled plans to buy one million hectares of Australian farmland to raise beef.
Cause for alarm?
Despite community concerns about food security, the actual level of foreign investment in Australian agricultural land is relatively low and very few local businesses are being taken over by foreign investors.
A December 2010 survey by the Australian Bureau of Statistics found that 89 per cent of Australia’s 398 million hectares of agricultural land was entirely Australian-owned, with the bulk of the remainder having some level of foreign ownership. Meanwhile, 99 per cent of the country’s 133,600 agricultural businesses were entirely Australian-owned. (The ABS is currently updating the survey.)
But there is always a politically-charged undercurrent to foreign ownership, particularly when offshore corporations are threatening to take control of primary production. Foreign investment can boost competition, employment and infrastructure but it can also introduce concerns about national security and losing control of vital local resources.
That is why large deals are given the once-over by the Foreign Investment Review Board (FIRB), which assesses whether they are in the “national interest”, and then makes a recommendation to the Treasurer.
However, it is rare for a major deal to be knocked back. Since 2001, there have only been two significant rejections: Shell’s attempted takeover of Woodside Petroleum (which was approved by FIRB but rejected by then Treasurer Peter Costello) and in 2011, when the Singapore Exchange struck a preliminary deal to acquire Australia’s share trading exchange, the ASX.
In fact, FIRB has never said no to any foreign agriculture acquisition as deputy Nationals leader and agriculture minister Barnaby Joyce has been keen to point out. What’s more, foreign investment of less than $248 million (or $1.078 billion for US and NZ investors) is not reviewed by FIRB at all.
In an effort to appease community concerns, the Coalition has proposed lowering the review threshold to $15 million specifically for foreign investment in agricultural land, which would bring many more transactions under FIRB’s watch (although the federal government still reviews all direct investment by foreign governments). It has also unveiled plans to launch a national foreign ownership register specifically for agricultural land in an effort to improve transparency.
But while FIRB rarely rejects major foreign investment, it would be unfair to suggest that it simply waves through deals. It regularly places conditions on its approval. For example, in November 2010, the government approved Asian agribusiness Wilmar International’s acquisition of Australian sugar producer Sucrogen, which included conditions restricting its potential influence on export marketing body Queensland Sugar and sugar storage infrastructure owned by Sugar Terminals.
Similarly, the Australian Competition and Consumer Commission must also approve any transaction which may potentially impact competition and it can also attach its own set of conditions.
They are not insubstantial hurdles to jump. The Organisation for Economic Co-operation and Development (OECD) ranks Australia as the tenth most restrictive nation out of 34 when it comes to foreign investment in agriculture, according to Politifact.
While Treasurer Joe Hockey has already cleared the way for Saputo to take over Warrnambool – without any attached conditions – ADM’s bid for Graincorp was knocked back after “long and careful deliberation”. The decision, which was originally expected on December 17, followed strong lobbying on the part of the Nationals and their largely farming-based electorate to oppose the takeover.
But there is, of course, a second (and simpler) way to evaluate foreign investment – and it applies equally to any public company: are they bidding enough?
Saputo has already raised its offer twice (it now stands at $9.20 per share if it acquires more than half of the company) after Bega Cheese, which already owns a majority stake in Warrnambool Cheese and Butter, first bid for the company in September. Rival suitor Murray Goulburn Co-operative Co has since trumped Saputo’s bid with its own offer of $9.50 per share.
A bidding war is always a good sign for shareholders, who have seen the value of their shares double since September. Warrnambool Cheese and Butter’s directors have backed Saputo’s offer but shareholders still have to make up their own minds.
Independent expert, KPMG, has also backed Saputo and valued Warrnambool Cheese and Butter’s shares at up to $7.49. (Keep in mind that independent experts are not really independent – they are appointed and paid by the company which received the takeover offer. However, the information in the report is crucial to make an evaluation.)
The bidding war for Warrnambool Cheese and Butter has already risen well above expectations. (Murray Goulburn CEO Gary Helou described it as reaching “nosebleed levels” when it exceeded $9 per share.) And it’s not just shareholders who will receive a great return – many of us indirectly hold shares in the company via our superannuation funds.
That’s money which the average Australian could gleefully spend boosting their already robust annual consumption of cheese, milk and wheat.
Brendan Swift is a business journalist based in Sydney.
With Felicity Marshall